Buying a house - Closing without funding?

September 17, 2010 7:49 PM

We're buying a house. Due to a misunderstanding, we went through the closing today, but the bank isn't prepared to fund the loan. What can we do except wait? How do we do right by the seller?

Anon because this is a very specific situation.

Mrs. Anon and I are buying a house. The sellers wanted to move quickly, but the mortgage company couldn't process by their deadline. We received an extension for this week. Today, in fact. We had to lean on the mortgage company to get everything done by today.

In the end, though, they've had everything for a month, so they actually haven't moved any faster than usual.

Yesterday, the bank told us that the only missing item was a form from the IRS. The IRS is beyond the bank's control, of course, but the bank expected to receive the form any day now.

Our real estate agent told us we couldn't close without the IRS form. So we waited anxiously, hoping for the best.

The real estate agent called this morning. She said the bank sent the closing paperwork to the title company, so we're ready to close. Great! The form must have come in. We verified the closing costs; we got a certified check; we signed a stack of papers; we closed.

The escrow agent at the title company said she'd stay late this afternoon, wait for the funding to go through, and make sure we could get the house keys today. She waited and waited. Eventually, she found out the bank has not approved funding the loan "because the borrowers' file is incomplete." The escrow agent asked what was missing. The bank would not say what was missing, but told the escrow agent that "the borrowers are aware of the missing documentation." The bank made it sound like our fault.

We called the bank. We questioned. WTF is going on? The bank says we knew they still needed the IRS form and that we wouldn't get funded without it. We explained that our understanding was that the closing could not happen at all without the bank having received the IRS form.

We assumed that if the bank sent the closing paperwork to the title company that everything was complete. This is our first house, so we didn't know there was an option for "closing without funding". It obviously took the escrow agent by surprise, too, since she was waiting for funding to go through to get keys to us.

The sellers wanted to close today. We made a big deal about closing today. So, the bank arranged for us to close today. Everyone was blindsided by the fact that funding is still pending. The title company cashed the check, but can't receive the money. This also means the seller hasn't received any money, either.

I guess that now everyone sits in limbo until this IRS form comes through. Is there anything else we can do?

Also, part of our conundrum is what to do with the seller. He was expecting to get paid today and wasn't. That isn't really our fault, but I wonder if some sort of recompense is in order? Although we're both victims here--the seller doesn't have his money and my wife and I don't have access to the house--I'm sure he perceives this as our fault.

What to do?

thowaway: loan (dot) trouble (at) gmail (dot) com

posted by anonymous to work & money (13 answers total)

There's nothing particularly important about a seller "expecting to be paid today" ... transactions and deals fall through all the time. Just give it a few days, and everyone will be fine.
posted by jayder at 8:01 PM on September 17, 2010 [1 favorite]

It is my impression that it is normal in cases like these to pay the daily interest cost for the value of the house (using the interest rate for your mortgage) to the seller, but if you don't have access to the house, maybe that isn't appropriate. Still, it wouldn't be a whole lot of money and it would be a nice gesture of fairness.
posted by ssg at 8:03 PM on September 17, 2010

I assume the house is currently vacant? Can you offer to rent it from the seller at an above-market rate until the closing goes through? It would allow you to get into the house and give the seller some benefit while the closing is finalized.

The potential problem for the seller, of course, is what happens if your deal falls apart; the potential problem for you is that and what happens if the deal doesn't fall apart but takes another 30 days or something ridiculous.

As a seller, I would want a vastly over-market daily rate, like $200/day rising to $500 a day after a week or something similar to make sure everyone had incentive to get it done...so if you propose this, expect something similar.
posted by maxwelton at 8:05 PM on September 17, 2010

What's the question? Drink a beer and put it out of your mind until monday when the bank opens back up.

When it does, go down and talk to someone who is apprised of your situation face to face.
posted by TheBones at 8:09 PM on September 17, 2010 [2 favorites]

I used to work in the mortgage division of a bank. Although my role was mostly a Marketing one, I'm pretty familiar with the whole process. By any chance, are you waiting on Form 4506?

I am in no way taking the bank's side in this, because it seems to me like they TOTALLY dropped the ball. During the days of easy lending, Form 4506 was practically an afterthought. Now they won't even fund without it. That means that the Loan Officer you're working with (or his/her team) should have sent that form in at the very beginning of this transaction. IIRC, getting it back from the IRS typically only took about 3 days for us, but that was 2 years ago. But let's not dwell on what should have happened.

You mentioned you spoke to the bank, but who at the bank did you speak to? Was it your Loan Officer? I would bypass him/her and speak directly to his/her manager. Explain what has happened and the predicament that you are in. It may be even more helpful to have your attorney draft something to send them as well. Has your attorney been in contact with the seller's attorney? Also- IANAL, but I would strongly recommend against communicating with the seller directly right this moment.

I would seriously consider writing directly to the CEO of the bank you're dealing with. I know, it sounds extreme. But you're in an extreme situation. The bank should have been properly managing your expectations and communicating truthfully about their timeline with you. Sounds like they haven't. If you write an email to a CEO, you'd be surprised sometimes at how quickly you can get a response. Especially in the aftermath of a mortgage crisis - these guys don't want/can't afford bad PR when it concerns a mortgage. Does the bank have any branches near you that are open on Saturdays? Walk right on in, ask to speak directly to a manager on duty, and stress the gravity of your situation.

I'd be happy to go into more detail about the 4506 if you'd like, or discuss any additional details with you about the situation - not sure how much you're comfortable sharing. Please feel free to send me a direct message in the metafilter account. If I can help I would be glad to.
posted by saturn25 at 8:20 PM on September 17, 2010 [10 favorites]

Don't worry about it. Dry closings (where docs are signed but the loan is not funded) are rare but they do happen. The sellers will be compensated for their patience with some interest (which you will be paying for whether you know it or not) and the bank obviously expects the last piece of paper in the paper chase to arrive without a problem, else they would not have permitted even a dry closing. Based on what you've said here, my guess is that the bank is waiting on the IRS form which will verify the information you have already provided on your W2's-just to make sure you didn't print them up on Word and have a friend verify your employment. They don't expect bad news, they expect everything to check out, so they went ahead and had you sign and will fund probably Monday.

Having said all that, why the hell didn't your loan officer mention this? I've done a few of these and never did I spring it on the client like that. So once it's all done, a phone call about the lack of notification would be reasonable.
posted by supercapitalist at 8:23 PM on September 17, 2010 [1 favorite]

Oh, and one more thing: just remember that this WILL get fixed. It will. Remember, you want to buy this house, and your seller wants to sell it to you! It will be OK. While I don't remember closings getting held up specifically for the 4506, I do remember the $$ getting held up for other reasons and it always, ALWAYS worked out in the end. If the bank was able to send all of the pertinent closing docs, you are for all intents and purposes, good to go. Just make sure you are assertive with the bank and you will be alright.
posted by saturn25 at 8:31 PM on September 17, 2010

The IRS has a service for mortgage lenders, which GUARANTEES a 48- hour turnaround for 4506s. Your bank so dropped the ball on this it's not even funny. My IRS pal says the most likely thing is that your bank was cut-off by the IRS for non-payment of their bill, which happens often. I'd scream like crazy when I went into the bank.
posted by Dee Xtrovert at 6:01 AM on September 18, 2010 [3 favorites]

Buying a house is stressful. It's clear from your question you're stressed, you have every right to be.

Fortunately there are two professionals working the purchase of your house getting paid 5-6% commission to handle the process of your buying your house. They are both highly committed to seeing the sale through. At this point the seller also really wants the deal to go through. Call your buying agent, explain anything he or she doesn't already know, then put it out of your mind for the weekend. Nothing is going to happen until Monday. As long as the real estate agents and the seller understand you're still buying the house and it's just a matter of the bank screwing up the post-meltdown paperwork, it'll be fine.
posted by Nelson at 7:02 AM on September 18, 2010

It may be worth investigating the possibility of a bridge loan if the bank's timeline is unknown and the seller is impatient.
posted by thatdawnperson at 5:20 PM on September 18, 2010

I really don't think a bridge loan is going to be the right answer here. Getting a bridge loan for mortgage financing is not really that simple - since it's a separate product from the loan they're taking to buy the house, they'll have to start with a totally new application and go through a complete underwriting process. Bridge loans carry with them different rates & closing costs (typically steep) and different credit guidelines. We don't even know if Anonymous qualifies for the bridge loan. And the bridge loan will need to be secured to a property. We don't know if anonymous even owns their current residence.

If the bank is only still waiting on a returned 4506, the timeline here must be pretty short, and not worth opening a whole new can of (very expensive) worms. The fact that the bank was willing to let them do a dry closing indicates to me that the 4506 is on the way. And I'm willing to bet that someone at the bank got their a#% handed to them for not getting this ready beforehand!

Anonymous, if you are charged any additional fees with anything as a result of the funding delay, be sure to document them. When you complain to the bank, you should offer proof of them and see if they can offset the fees. As with any effective corporate complaint, make sure you are clear on what happened, who you spoke to, on which day, etc.
posted by saturn25 at 9:04 AM on September 19, 2010

I worked for a Savings and Loan in the mortgage department as a loan processor and an underwriter. As others have said - your bank fucked up badly. But I'm guessing that by now your loan has been funded.

Any chance of getting an update?
posted by deborah at 4:26 PM on September 21, 2010

From the OP:

Thanks, all. As many of you guessed, the holdup was due to form 4506-T. The normal turn-around time is usually just a few days. The lender's explanation is that the IRS has been backlogged on 4506-T requests since April when the first-time homebuyer incentive was expiring.

Our real estate agent corroborated this. She recently had another sale held up for a week for the same reason.

Talking face-to-face with the loan officer was impossible. The mortgage company is in another city. They're a company that works with credit unions too small to have their own mortgage departments. We did, however, speak with our liaison at our credit union a few times.

Over the weekend, we communicated with our real estate agent, the seller's real estate agent, and the title company. We let them know that the delay wasn't our fault, despite what the lender's closing department told the title company.

The title company is miffed with the lender, too. The escrow agent, in particular, since no where in the closing paperwork is a mention that this would be a dry closing. Seems that oversight was a professional discourtesy. She even had the lending bank's closing department on the phone for final approval of our HUD-1 a few hours before closing. They said nothing to her about it then, either.

We received funding late on Monday and we now have the keys. The seller wouldn't have received any money until Monday, anyway, so we're not paying any extra "rent" or interest.

I've already drafted a timeline documenting several instances of delayed responses and miscommunication. This fiasco around closing is just the most egregious example.

posted by jessamyn at 7:31 PM on September 21, 2010